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Hidden Tiger

Saudi Arabia’s construction industry is about to boom. On the eve of an NCE organised trade mission to Saudi Arabia, Bernadette Redfern assesses prospects for UK-based construction firms.

Saudi Arabia’s construction sector is often referred to as a sleeping giant. As smaller states such as the United Arab Emirates (UAE) launched project after project, Saudi remained conservative in terms of its pace of development.

However the Kingdom is far from conservative in terms of the scale of its plans. The global fall in commodities prices, combined with a desire to maximise returns from record oil prices has led to an acceleration in projects getting underway.

According to the Middle East project tracker service run by MEED Projects, the value of contracts awarded in the construction sector alone in 2008 was £3.3bn – almost double that awarded in 2007.

This growth, coupled with the country’s biggest ever budget, which forecasts spending of £85bn in 2009, is leading many in construction to speculate that the giant is now awakening. British government overseas trade promotion arm UK Trade & Investment (UKT&I) has an office in Riyadh. Its commercial officer Saad Al-Adhami some major opportunities are on the horizon. These include three major railways, and four new multi-billion pound cities, not to mention investment in power, water and marine infrastructure.

"There are market opportunities for most infrastructure related firms across all sectors," says Al-Adhami. "We get requests for [introductions to] all sorts of companies, particularly quantity and cost consultants, project managers and bidding consultants."

The fact that the Kingdom particularly needs programme and project managers is unsurprising as many of the schemes being launched are on a scale never seen before. For example King Abdullah Economic City, a whole new urban conurbation north of Jeddah supported by industry and a massive port, is worth £18bn. And the Kingdom is also on the brink of building its first modern railway, covering a 950km route between Riyadh and Jeddah.

Generalconstruction -£116bn
Economic Cities
The Saudi Arabian government has begun investing £33bn in building four new cities with a combined population 5M by 2020. Two more cities are planned. The infrastructure needs are vast and so are the opportunities for UK firms as design and construction are at the very early stages. Most advanced is the largest city, King Abdullah Economic City located north of Jeddah.

Housing and real estate
Housing is high on the list of investment priorities for the Kingdom with demand outstripping supply as population grows by up to 500,000 people per annum. According to UKT&I’s Riyadh head of trade and investment Tim Dearden local government is facing a major challenge when it comes to planning the location of new developments. "There are opportunities for town planners to work with the municipalities," he says.

To ease the housing shortage major real estate projects are getting underway such as the Jeddah based Al Wasl residential housing scheme valued at over £9bn, which is being developed by United Arab Emirates developer Limitless.

Transport - £34bn
Rail
There are plans for more than £34bn of investment in new roads, railways and ports. Around half of this is being committed to new rail projects. Some of the biggest rail schemes include:

  • The £3bn Saudi Landbridge linking Jeddah with Riyadh. The 50 year Build Operate Transfer (BOT) contract is currently being re-tendered after the government decided that global credit conditions and falls in commodity prices would dramatically alter the budget. Four consortia are bidding and each involve UK firms including Atkins, Arup, Balfour Beatty, Halcrow, Mott MacDonald and Scott Wilson. Parsons Brinckerhoff is working with local Saud Consult as main consultant.

  • The £4bn Mecca to Medina high speed link. The 444km line also runs through Jeddah and was originally to be let as a BOT project. The government now plans to use a more traditional procurement form. Six firms have prequalified to bid. n The £2.7bn Mecca monorail, which will link in to the Mecca to Medina high speed rail link and transport pilgrims to the city’s holy sites.

Roads
The roads budget for the Ministry of Transport and Telecommunications is £3.5bn per year and much of this is currently being invested in major highway network upgrades in major cities such as Riyadh and Jeddah. Across the country existing two lane roads are being upgraded to four lanes.

Ports
Improvement to marine infrastructure to boost trade is a key priority. Saudi Arabia is also upgrading transport links into its sea terminals. The biggest scheme planned in the marine sector is a new £4bn port which is part of the King Abdullah Economic City. Consultants such as Halcrow, RSP Architects, Planners & Engineers and Cansult Maunsell are involved with the design. Construction contracts will be awarded later this year.

Water and Electricity- £160bn
Water scarce Saudi Arabia must invest heavily to meet demand for potable water.
It has embarked on an extensive privatisation programme led by the National Water Company, which was established in 2007. So far, two management contracts have been awarded for water services and wastewater collection. One covers Riyadh and has been awarded to France’s Veolia. The other covers Jeddah and has gone to GDF Suez, also of France in partnership with local firm Acwa Power International.

Ten more contracts are set to follow and the next to be let will be a six-to-seven-year public-private partnership (PPP) covering Greater Dammam, Medina, Mecca and Taif. These will be followed by contracts to upgrade and maintain major wastewater treatment works in the Kingdom.

  • Watch a video of UKT&I’s Middle East expert Paul Taylor on construction opportunities in Saudi Arabia at www.nce.co.uk/video

KEY CLIENTS
The key client organisations and routes into the Saudi Arabian construction sector vary.

Some firms work directly for major government bodies such as the Saudi Arabian General Investment Authority (Sagia), others seek to work for major contractors such as Saudi Bin Laden Group or Saudi Oger. Some seek to work with local consultants that need international partners to work on major schemes. "Many of the major clients are big construction firms who will assign project managers and smaller companies to work on their schemes," says UKT&I’s Al-Adhami.

Building long term relationships is the key to building workload in Saudi. "Relationships are paramount," explains consultant Buro Happold regional director Phil Dalglish. "We have a number of close long standing clients. For example we have been working with the Arriyadh Development Authority for more than 20 years." Getting to know clients for the first time can be tricky. UKT&I advocates trade missions and says that the seniority of delegates sent can affect the relationship that is formed. Sending a CEO means that you are more likely to meet the person in charge of the organisations that you are visiting. "Last year the trade missions by [then trade minister] Digby Jones in April and the prime minister in November bought with them company directors and CEOs. This generated a lot of interest here and it works both ways as senior delegates then came over to the UK," says Dearden.

10 key clients
Saudi Arabia General Investment
Authority (Sagia)
Tel: +966 1 203 5555
www.investinsaudi.org.sa

Arriyadh Development Authority
Tel: +966 1 488 3331
www.arriyadh.com

Saudi Railways Organisation (SRO)
Tel: +966 3 871 3001
www.saudirailways.org

National Water Company
info@nwc.com.sa
www.nwc.com.sa
(Arabic language website)

Emaar The Economic City
Jeddah office
tel: +966 2 615 9999
www.kingabdullahcity.com/en/

Saudi Bin Laden Group
(contractor)
Tel: +966 2 644 3033
www.sbg.org

Saudi Oger
(contractor)
Tel: +966 1 477 3115
www.saudioger.com

El Seif Engineering Contracting Company
(contractor)
Tel: +966 1 454 9191
www.el-seif.com.sa

Saud Consult
(consultant)
Tel+966 1 465 9975
www.saudconsult.com

Khatib & Alami
(consultant)
Tel: +966 2 614 3761
www.khatibalami.com

Click here for Saudi Arabian Construction: Facts and figures

Basic background facts

  • 1 Saudi Riyal = £0.1826. The Riyal is pegged to the US dollar at $1 = SAR 3.746

  • Office hours are 9am until 1pm with a long break in the afternoon. Offices reopen at around 4pm and close at 7pm n Weekends are Thursdays/Fridays unlike other Gulf states which have a Friday/Saturday weekend.

  • Eid al Fitr and Eid Al Adha are major holidays during which business activities are suspended.

  • Eaid al Fitr (festival of fast breaking) lasts for three days and celebrates the end of Ramadan. This year it begins at sunset on 19 September.

  • Ramadan also coincides with the hottest part of the year. This means that most nationals go on holiday and business activities slow down. UKT&I recommends that businesses visit the Kingdom outside this period. n Eid al Adha (festival of sacrifice) is a four day festival held at the end of the annual period of Hajj pilgrimage to Mecca. This year it begins at sunset on 26 November.

  • Saudi Arabia is made up of 13 provinces each with its own governor

  • It has a population of 27.5M people, 90% of which are Saudi nationals


Events and resources
NCE,sister publications Construction News and Architects Journal with trade missions expert British Expertise are running a trade mission to Jeddah and Riyadh in April. For more information contact nina.lovelace@emap.com

The mission offers senior construction executives the chance to go on a four day trade mission
to Riyadh and Jeddah. The mission will start on 25 April, 2009. It will be restricted to 20 delegates who will have the opportunity to:

  • Meet senior decision-makers from Saudi Arabia’s top developers at business-matching events.

  • Go to evening receptions at British missions in both Riyadh and Jeddah.

  • Visit major construction sites to understand local construction issues. This includes the $80bn King Abdullah Economic City near Jeddah.

  • Attend market opportunity briefings from the local embassy and from Saudi government officials.

  • Meet with British firms which are already working to better local construction culture and business issues.

Women are encouraged to attend and will be helped to manage any cultural issues. For more information and costings, please visit www.cnplus.co.uk/middleeast or contact mission manager Nina Lovelace on 0207 728 4832 or email nina.lovelace@emap.com Further missions are planned for Abu Dhabi/Qatar and Libya.

Another NCE sister publication Middle East Economic Digest (MEED) publishes all Saudi Arabian (and Middle East) project tenders on its website www.meed.com and runs a project tracking service called MEED Projects which has latest information on projects and provides contacts for firms involved (www.meedprojects.com). Its information service business MEED Insight creates bespoke intelligence reports on MENA markets.

MEED’s 2009 events

  • Middle East Ports Developments 2009 (Dubai) – 1-3 February 2009

  • Arabian World Construction Summit (Abu Dhabi) – 9-11 February 2009

  • Middle East Airports Projects (Dubai) - 23-24 February 2009

  • Arabian Power & Water Summit (Abu Dhabi)– 30-31 March 2009

Local Knowledge
Saudi Arabian law is based on the Sunni branch of the Islamic faith and is strict.

Saudi society is extremely conservative. Women do not drive, unmarried men and women must not mix socially and alcohol is, with a few exceptions, banned.

Foreigners must have business visas and applying is a slow bureaucratic process. Employers are expected to provide housing, transport and medical cover for expatriate staff.

Most Saudi professionals speak English, but getting technical documents translated can be tricky as many translators do not understand technical terms.

Decision making in Saudi firms can take time. Many companies are family owned and family members discuss new propositions before committing to a course of action.

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